Washington Bulletin 7/3

July 5, 2017

Washington Update

On Capitol Hill

House Appropriations Advance Despite Uncertain Spending Strategy

Republican leaders’ strategy for moving the first of the FY 2018 spending bills to the House floor won’t be resolved until July, including whether to bundle all 12 into one omnibus, House Appropriations Committee Chairman Rodney Frelinghuysen (R-NJ) and other lawmakers said.

Chairman Frelinghuysen said after his committee reported the $658.1 billion Department of Defense appropriations bill that the Pentagon measure and others already approved will remain on hold while Republican leaders decide whether to wrap all the bills into an omnibus and put the package to a vote shortly before the August recess.

“The leadership hasn’t decided yet about whether to do an omnibus but I’m intent on marking up and reporting all 12 [spending] bills by next month to have them ready,” Chairman Frelinghuysen stated following the committee’s approval of the massive DOD spending bill and the much smaller Legislative Branch bill.

Appropriators are struggling to move as many spending bills as possible in July as they will be leaving July 29 for a five-week recess and current government funds run out September 30. However, they have been hampered by a lack of agreement among Republicans about total discretionary spending levels and so far, haven’t seen a budget resolution advance to the floor or been given the go-ahead to bring individual bills to the floor.

The developments mean the Defense Appropriations bill—which represents more than half of the roughly $1.1 trillion in discretionary spending available for the 12 regular spending bills—will remain on hold along with the $88.8 billion Military Construction and Veterans Affairs (Millcon-VA) spending bill that the committee approved weeks ago. The committee also approved during markup June 29 the $3.58 billion Legislative Branch bill funding congressional operations.

Chairman Frelinghuysen also set in motion markups of four other bills—Agriculture, Energy and Water, Financial Services, and Commerce-Justice-Science (CJS) —prior to lawmakers’ departure for the 10-day break. Agriculture and Energy and Water were approved in subcommittee June 28 while separate markups for Financial Services and CJS were held during later sessions June 29. Full committee markups for the latter bills are expected to be scheduled soon after lawmakers return.

Both Republicans and Democrats said they support increased Defense spending, but many Democrats expressed frustration with Chairman Frelinghuysen’s decision to not issue a full set of so-called 302(b) allocations, or individual appropriation bill funding limits, to committee members before going ahead with markups of the bills. The big increases included in the Defense and Milcon-VA bills translated into flat funding and cuts when Chairman Frelinghuysen began releasing drafts of the other bills covering domestic programs in recent days. Democrats said they expect to see more drastic cuts ahead when Frelinghuysen releases drafts for the other five bills in July.

Labor-HHS Subcommittee Chairman Cole (R-OK) declined to confirm that number but previously said Labor-HHS and all the other bills are facing cuts, including State-Foreign Operations, and Transportation, Housing and Urban Development.

Appropriations Committee ranking member Rep. Nita Lowey (D-NY) said work on the FY 2018 budget resolution remains in flux and she has yet to hear of any plan to prevent a default on the federal debt later his year. Also, she criticized the lack of movement on talks to provide more relief from the Budget Control Act’s (BCA) spending caps. She said the Defense bill with its $68.1 billion increase shatters the existing BCA Defense spending cap and would trigger an automatic across-the-board cut of 13 percent to every account in the bill. The $658.1 billion total includes $584.2 billion in regular spending subject to the BCA’s discretionary spending cap and $73.9 billion in so-called Overseas Contingency Operations account money not subject to the cap.

“Add to that a layer of secrecy and no transparency about the impacts on the 302(b) allocations for the rest of the bills,” Lowey said. “We know what it means: drastic cuts to Americans’ priorities, like job creation and training, infrastructure improvement, safety net programs like meals for homebound seniors, and much more.”

Although Democrats failed to change or stop Republicans’ plans in committee, members of both parties said the bills advancing in committee have little chance of being enacted.

Support for the omnibus Republican leaders are talking about putting together and taking to the floor is uncertain, Labour-HHS Subcommittee Chairman Cole said.

“It’s not going to have Democrats’ support, and so you’d have to have Republican unity, and that’s something we don’t have,” he said. Representative Cole said he would recommend bringing the DOD bill up by itself but still said he expects things to play out the same as last year. “We’re going to have to have a discussion with the Senate and the administration about what they’re going to fund. We’ll have to do a short-term [continuing resolution] in September while we work to get a bipartisan, bicameral agreement,” he stated.

A similar scenario is predicted by Rep. Peter Visclosky (D-Ind.), ranking member of the Defense Subcommittee. “If past is prologue, after this bill passes the House, it will sit idle until mid-September, when we begin the tortured process of short-term continuing resolutions, shutdown brinksmanship, possibly an increase in the BCA caps, and then, maybe an omnibus,” he said.

“It’s a slow train wreck we can all see coming,” said THUD Subcommittee ranking member David Price (D-N.C.).

House Energy & Water Appropriations Moves to Full Committee Markup

The House Appropriations Committee passed their FY18 Energy and Water Bill in subcommittee markup June 28. Energy and Water Subcommittee Chairman Mike Simpson (R-ID) said his bill includes healthy increases for security-related programs, including $1 0.24 billion for the Energy Department’s national defense programs, a $921 million increase, and an $120 million increase for the U.S. Army Corps of Engineers. The bill is $3.65 billion higher than the White House FY18 budget request.

“Increases over last year are targeted to those areas where they are needed most—to provide for our nation’s defense and to support our nation’s infrastructure. This is a responsible bill, one that makes some difficult choices in order to prioritize the most critical federal programs, “Subcommittee Chairman Simpson said.

Energy and Water Ranking Member Marcy Kaptur (D-OH) said she also supports the bill and is grateful it is among the first to be marked up and moved in committee. But she questioned the overall “disarray” that she said marks the FY 2018 process.

“The vastly different opinions of how much funding should be allocated to discretionary spending has left many valuable programs—not just in this subcommittee but other subcommittees—in suspended animation, something that does a tremendous disservice to our country,” Representative Kaptur said. “By extension, not having a full array of 302(b) allocations in the budget process by which to judge the relative merits of singular spending decisions is really not fair to this subcommittee or the other 11.”
House Appropriations Energy and Water Subcommittee Chairman Mike Simpson cited the pressure to cut spending for his decision to propose getting rid of program he professed to like.

Notably the bill eliminates the Energy Department’s Advanced Research Projects Agency-Energy (ARPA-E), though Subcommittee Chairman Simpson announced that he personally supports the program, which was funded at $306 million in fiscal 2017. Simpson said he had to make the hard decision to eliminate the program. Supporters of research and development may not be in a panic yet over the potential elimination of ARPA-E, as Representative Simpson may be banking on his Senate counterpart, Senator Lamar Alexander (R-TN) to support ARPA-E in a final deal.

Senate Republicans Health Care Negotiations Ongoing

Last week, Senate Health Care negotiations continued, yet without a final deal. Senate Republican leaders are considering a proposal by Senator Ted Cruz (R-TX) that would allow insurers to sell cheaper, less robust plans as long as they also sell policies that meet coverage standards imposed by the Affordable Care Act.

That idea is aimed at breaking the health-care logjam and winning conservative holdouts — but the proposal faces opposition from the party’s moderate wing, underscoring the delicate balance facing leaders trying to secure votes for a bill to unwind the Affordable Care Act.

Separately, Republican Senator Bob Corker (R-TN) announced last week that he expects Republican leaders to scrap a provision in the bill that would repeal a tax on investment income that affects high-income earners. Senator Corker said the decision to retain the Affordable Care Act’s 3.8 percent tax on net investment income would help Republicans boost subsidies for low-income people in the individual exchanges. Some other Republicans said they were willing to at least consider the idea.

Meanwhile, a long-term analysis of the legislation found that the bill would slash spending on Medicaid by about 35 percent over the next 20 years, according to the Congressional Budget Office (CBO). The CBO estimated that the bill will reduce Medicaid spending to 1.6 percent of gross domestic product in 2036, from 2 percent of GDP this year. The nonpartisan agency attributed the cuts to the bill’s cap on per-person spending and the phase-out of funding for Obamacare’s expansion of the program.

The Senate will be forced to continue health care negotiations upon their return July 10, following the Independence Day recess.

H.R. 497, Santa Ana River Land Exchange

The Santa Ana River Land Exchange bill, co-sponsored by Representatives Paul Cook (R-CA) and Pete Aguilar (D-CA) was passed in the House by unanimous consent in a 424-0 vote on June 27th. Under H.R. 497, about 327 acres of federal land would be conveyed to the San Bernardino Valley Water Conservation District in California in exchange for 310 acres of local land.

The bill would facilitate the implementation of a land use plan for about 4,900 acres agreed to by local stakeholders, according to a report on the bill from the House Natural Resources Committee.

The Bureau of Land Management (BLM) withdrew several parcels of land in the area from mineral development to support water conservation efforts. And, the exchange required under the measure would facilitate additional water conservation efforts under the agreement. It would also allow aggregate mining operations in the area to expand into conveyed parcels adjacent to existing operations, according to the report.

The expansion of local mining operations would lead to $8.5 million in new infrastructure construction and $36 million in increased annual payrolls, according to the committee.

The bill wouldn’t affect revenue or impose any intergovernmental or private-sector mandates, according to CBO, which said any costs incurred by the conservation district would be voluntary.

During the bill’s discussion on the House Floor, Representative Cook noted, ““This important legislation will complete the land swap at the center of the Santa Ana River Wash Plan. The Wash Plan will allow for the expansion of existing aggregate mining operations to support infrastructure, protect water recharge in the wash and manage critical habitat for threatened and endangered plants and animals. I’m grateful to Rep. Aguilar for co-sponsoring this bipartisan bill and thank my colleagues for passing the bill today.”

Similarly, Representative Pete Aguilar (D-CA) stated that, ““This bill is a smart, bipartisan plan that will help us support our local economy and protect the environment. It is a victory for all involved and I offer my complete support, and urge my colleagues to vote in favor of the Santa Ana River Wash Plan Land Exchange Act.”

In the Senate, the Senate Energy and Natural Resources Committee hasn’t acted on a companion measure, S. 357, introduced by Senator Dianne Feinstein (D-CA) on February 13.

House Votes to End Some Federal Funds for `Sanctuary’ Cities

The House voted to cut off some federal funding for state and local governments that have “sanctuary” policies preventing their personnel from cooperating with federal immigration officers.

Passed in a 228-195 vote, the measure is one of two bills the House sent to the Senate Thursday, June 30 that are designed to bolster enforcement of immigration laws and advance a key component of President Donald Trump’s agenda. The President said in a statement that both bills would “save and protect American lives.” And, he called on the Senate to pass them quickly.

The “Kate’s Law” measure, H.R. 3004, passed on a 257-167 vote and creates higher maximum sentences for individuals who attempt to re-enter the U.S. after being convicted of certain crimes or after being deported at least three times. The maximum sentences would range up to 25 years in prison, depending on the seriousness of the crime for which the person was convicted.

The proposal on sanctuary cities, H.R. 3003, make state or local governments ineligible for some federal aid if they have policies that hinder their cooperation with federal immigration officers or in enforcing federal immigration laws. Jurisdictions that violate the policy can lose access to federal grants for law enforcement, terrorism, national security, immigration or incarcerating undocumented immigrants. The sanctuary bill also would expand the Department of Homeland Security’s authority to detain immigrants during a removal proceeding.

Democrats argue that sanctuary policies create trust between law enforcement and the communities they protect, making people safer. The bill would block critical law enforcement funds and promote negative stereotypes about immigrants, opponents contend.

“I fear that some are highlighting tragedies in order to promote mass deportation and mass criminalization,” Representative Zoe Lofgren (D-CA) said during a Rules Committee meeting on the bills Tuesday.

Both bills are sponsored by House Judiciary Chairman Bob Goodlatte (R-VA). And, Similar measures have been blocked by Senate Democrats in previous years.

Administration

Trump Travel Ban Takes Effect Amid New Court Challenge

A new set of restrictions on refugees and immigrants from six predominantly Muslim countries took effect at 8 p.m. EDT June 30. The administration said the rules should help prevent the chaotic airport scenes witnessed when President Donald Trump’s initial order was abruptly imposed in January 2017.

The Trump Administration’s revised travel ban faced a new court challenge as soon as it took effect Thursday, June 30 after the President’s signature immigration policy already weathered months of protests, legal wrangling and delays.

But a half-hour before the ban took effect, Hawaii asked a judge to clarify whether the government violated instructions from the U.S. Supreme Court in defining who’s covered by the ban and who’s excluded. The U.S. Justice Department declined to comment.

If implemented as intended, the travel restrictions would allow President Trump to declare partial victory on his campaign promise to stem the flow of refugees and travelers from nations he deems a security risk. Lower court decisions to block two of his proposed travel bans were early, public defeats for the administration in its initial weeks.

To minimize disruptions this time, the State Department, Homeland Security Department and Justice Department coordinated in advance to establish clearer guidelines for thousands of consular officers, airlines and travelers. And unlike in January, when hundreds of travelers arriving in the U.S. were turned back or detained at airports, those already holding a valid visa will be let in.

The Supreme Court’s decision also revived the President’s efforts to suspend refugee admissions for 120 days and to reduce the maximum number of refugees allowed into the country to 50,000 from 110,000. The president has cited the risk of terrorists slipping into the U.S., while critics have said the ban discriminates against Muslims.

Yet many of the original criticisms of the ban remain. Administration officials wouldn’t explain why the ban targets the six countries or why refugees are deemed a threat to national security. Of 784,000 refugees resettled in the U.S. since 2011, just three were arrested for allegedly planning terrorist activities, according to the Migration Policy Institute.

Criticism was also swift toward the government’s conclusion about what constitutes a “bona fide” family relationship — for example, its refusal to consider grandparent a direct relative. Officials said they were using a definition outlined in the other parts of U.S. law.

The U.S. has already admitted about 49,000 refugees so far this year, just shy of the executive order’s 50,000 cap. Nongovernmental organizations and refugee advocates have struggled to determine how many people will actually be affected by the new restrictions.

Environmental Protection Agency Starts Water Rule Repeal

The Environmental Protection Agency (EPA) Administrator Scott Pruitt June 27 initiated the repeal of an Obama Administration-era water jurisdiction regulation by issuing a proposal that would reinstate prior policies on what waters are subject to federal protections, the agency announced.

The proposed repeal, once in final form, will be the first step the Trump Administration takes in a two-step process to undo the 2015 Clean Water Rule, also known as the Waters of the U.S. rule (WOTUS). The second step, which Administrator Pruitt has said will be completed by as soon as the end of the year, will involve a rewrite of the 2015 regulation.

“We are taking significant action to return power to the states and provide regulatory certainty to our nation’s farmers and businesses,” Pruitt said in a June 27 news release announcing the proposal.

The Obama-era water rule is facing dozens of lawsuits from various business, agriculture and manufacturing groups, including Murray Energy Corp., who argued the federal government improperly expanded its regulatory reach over waters. Environmental groups also have challenged the rule to make it more protective than its current form. The significance of this first step (RIN:2040-AF74) is that it will take the 2015 Obama water rule off the books, rendering moot all outstanding federal legal challenges against the regulation, attorneys said.

President Trump has already ordered the EPA and the U.S. Army Corps of Engineers to craft the new jurisdiction rule with states, their co-regulators in implementing the Clean Water Act. States are eagerly looking forward to that and have encouraged the administration to share more than just an outline of its plans to rewrite the jurisdictional rule.

The undoing of the Obama Administration-era water rule will involve the reinstatement of a 1986 jurisdiction rule and related guidance that the EPA said was in place “prior to the issuance of the Clean Water Rule and that is being implemented now under the U.S. Court of Appeals for the Sixth Circuit’s stay of that rule.”

A Sixth Circuit panel issued a nationwide stay of the WOTUS rule in 2015 after determining that there was a good chance that groups challenging the rule would prevail, and the proposed repeal of the Clean Water Rule would end that Sixth Circuit litigation. However, it would not end proceedings before the U.S. Supreme Court, which has been asked to decide which federal court should hear challenges to a water jurisdiction rule.

Congressional Budget Office Announces U.S. Can Fund Government till October

The U.S. Treasury can fund the government through early to mid-October under the current borrowing limit, the Congressional Budget Office (CBO) announced, giving lawmakers leeway to wait until after their summer recess to increase the debt cap despite pressure from the Trump Administration to act sooner.

“However, the timing and magnitude of revenues and outlays over the next few months could vary noticeably from CBO’s projections, so those measures could be exhausted and the Treasury could run out of cash earlier or later than CBO projects,” the Washington-based organization stated in a June 29 report.

While Treasury Secretary Steven Mnuchin urged lawmakers to raise the debt limit as soon as possible, he’s said the government can finance itself through at least the beginning of September and that he’s not concerned about the impact of lower-than-expected tax revenue. Simultaneously, the CBO said in March that it expected the government to exhaust its borrowing capacity sometime in the fall.

The Treasury Department has been relying on special accounting maneuvers since March to stay under the nearly $20 trillion current debt cap.

Treasury Department Secretary Mnuchin has called on Congress to pass a “clean” debt ceiling increase — without any policy riders — ideally before a five-week break that begins late next month. White House budget director Mick Mulvaney, backed by conservatives in the House, has suggested using the bill to try to force Democrats to accept spending cuts.

“I think that the Congress should raise the debt ceiling so that we don’t have to talk about prioritization, that’s really the focus,” Mnuchin said this month, referring to a choice the government would have to make on paying debts as a priority, above other obligations, to avoid a default. “We should be paying our bills when they’re due and we shouldn’t put the government at risk.”

In a separate report also released June 29, the independent office said the U.S. budget deficit in fiscal 2017 is projected to be $693 billion, wider than the previous projection of $559 billion. The gap in fiscal 2016 was $585 billion. The bigger shortfall reflects slow growth in revenue collection through May, a trend expected to continue the rest of the year, CBO said. The 2017 fiscal year runs through the end of September.

CBO projected the U.S. economy will expand 2.1 percent this calendar year, from a year earlier, rising from 1.6 percent in 2016. It forecast the unemployment rate will average 4.4 percent in 2017. The projections assume a continuation of current laws.

CBO will use the updated estimates as its yardstick for measuring the deficit, spending and revenue effects for the rest of the calendar year, including for evaluations of President Donald Trump’s budget and a planned tax-code overhaul. The President has proposed slashing spending by $3.6 trillion over the decade but ultimately it’s up to Congress to decide on the federal budget.

President Trump’s call to slash the corporate income tax rate to 15 percent has faced resistance during private tax meetings, according to a senior White House official.

While the President has been clear that he thinks cutting the rate, which is currently 35 percent, is essential for job creation, others have said that it’s impossible to cut it as much as he wants without adding to the federal deficit. Thus far, the Administration officials have met with over 200 members of Congress as part of the effort to craft the tax bill.

Offering a first glimpse into closed-door sessions on tax policy between President Trump’s top economic advisers and congressional leaders, the White House stated the two sides have yet to agree on whether tax legislation should be “deficit-neutral.” Senate Majority Leader Mitch McConnell (R-KY) and House Speaker Paul Ryan (R-WI) have both called for such neutrality — meaning that any tax cuts would be offset either by higher revenue from other sources or by spending cuts — though some of the President’s advisers have questioned the need for it.

President Trump has promised the largest tax cut in history, including the 15 percent corporate tax rate, which would be also be extended to partnerships, limited liability companies and other so-called “pass-through” entities. House Republican leaders, including Speaker Ryan, have proposed a 20 percent corporate tax rate and a 25 percent rate for pass-throughs. The biggest hurdle to a tax cut for Republicans is reaching a consensus on whether a bill should be revenue-neutral and, if so, how it should raise revenue to pay for tax-rate cuts.

To get around a lack of Democratic support for a tax-code rewrite, Senate Republicans have said they plan to use a legislative maneuver that allows for passing a bill with a simple majority. Under that procedure, however, tax cuts have to be offset so they don’t add to the long-term deficit. Otherwise, the tax changes can only be temporary.

The Trump Administration is still planning to reach agreement with congressional leaders on a unified tax framework by August, and then figure out the details in September. Assuming they do, the President is likely to publicly advocate for key elements of the plan in the hope of building support for the legislative process, according to the official. The Administration remains hopeful that a final bill can be completed before Thanksgiving, and signed into law before the end of the year, the individual said.

U.S. Conference of Mayors Approve Resolution to Fund the Land and Water Conservation Fund

On Monday, June 26th the U.S. Conference of Mayors passed a resolution announcing their continued dedication and support of the tax exemption for municipal bonds. Citing increased Congressional and Administration proposal to cut or cap tax-exempt bonds would severely limit economic growth and drastically increase financial costs for local governments.

The bipartisan group highlighted that the tax exemption provided local governments with needed saving that funds “infrastructure that touches the daily lives of every American and are the foundation of civilized society, including roads, transit, schools, affordable housing, water and wastewater, hospitals, airports, and electricity.”

Since the enactment of the original Tax Code in 1913, interest paid on municipal bonds has been exempt from federal tax. These bonds have, according the Conference, “been the primary financing tool state and local governments use to access capital markets to meet the infrastructure needs of their citizens.”

Despite recent federal proposals to limit or erase the tax exemption the Conference noted a December 2016 meeting with then President-elect Donald Trump in which he promised to support retaining the tax exemption for municipal bonds. However, the President’s April 2017 tax-plan outline included vague language that could be interpreted as unsupportive of the tax exemption for municipal bonds.

The resolution resolved not only their continued support of the tax exemption but its thanks to Representatives Randy Hultgren (R-IL) and Dutch Ruppersberger (D-MD) for forming the bipartisan Municipal Finance Caucus and urged fellow House members to join the Caucus.